Lizz
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First time poster. Not sure if I am in the right forum.
Here's my question: I have a asset line of credit with a $100,000 balance with a rate of 2.5%. I will be getting $50 - 80,0000. Would like opinions on whether I should use that money to pay on the Credit line or put it somewhere else. Maybe something that earns a higher interest rate and have the interest applied to the line of credit.
Perhaps there are other options available that I am not familar with.
Edited to add: I am 55, so that may influence what my options would be.
Last edited by Lizz on Mon Feb 01, 2010 4:28 pm; edited 1 time in total |
Mon Feb 01, 2010 2:48 pm |
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oldguy
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quote:
I have a asset line of credit with a $100,000 balance with a rate of 2.5%
Depending on the terms - I would probably keep that loan for the full term, I would never prepay 2.5% capital.
A bond fund at a no-load fund company typically has a 5% to 7% return (GNMA Fund was about 6.5% for 2009). And, if you have a 20 or 30 yr horizon, you can take more risk and select long term investments such as a Total Market Index Fund - historically they have an average return of 11%/yr, but you must have the patience to wait for the averaging to occur.
Eg, $50,000 invested at 11% for 30 yrs = $1,145,000.
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Mon Feb 01, 2010 4:09 pm |
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splinter7
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If you invest the 50k you may get the 11%, but to reach the compounded amount oldguy (1MM$+) suggested you would not be able to use the interest to pay down your other debt.
Also, think about this: you have 50k, then 1st year you have 55 after 11%, you pay 5 to your debt, back to 50k again, the following year the index goes down 20%, now you have 40 and can't pay your debt at all. Will you default? Or, lose your backing asset?
The diversified bonds are a better idea since you get to keep your capital base after each year (almost no matter what happens). This is especially important given that the bonds will perform the same each year, the market does not. Do you remember 2007 and 2008? I you had invested in indices then you would still not even be back at your base amount. The bonds, however, would still be paying and you would have your 50k.
Also, you're in your 50's, not 20's, you need less risk. Not to be too morbid, but you don't need the money at the end of the 'horizon'.
Personally, having taken on a large chunk of debt recently (house, car, school) I am at the point where I need to know I can make my debt payments. I can no longer take huge risks. This seems to be where you are.
Now, if you have no worries about the future (that the market will go up for 20 straight years), or don't mind losing the asset that backs your debt, then invest in the market.
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Mon Feb 01, 2010 9:29 pm |
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Lizz
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So, what your're saying if to just keep paying the off the $100,000 as i have been and not use the $50,000 to pay that down.
Since I am no "spring chicken" I may not have a 20 to 30 year window to wait. If I'm lucky I might make another 20 years. LOL
The recommendation is diversified bonds. I'm a novice when it comes to this topic. Diversifed bonds may be good now, but what happens when interest rates start to go up. I may have misunderstood, but was told that as rates go up the bonds go down. And then aren't worth much at all.
Maybe someone could explain how that works or have any other ideas on what options I might have?
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Thu Feb 04, 2010 6:56 pm |
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C9Consulting
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How's your retirement looking? Maybe if you use some of the money to pay down the debt and some to invest....it may make better sense given your age (no offense). This way you'll have less risk and you won't be giving your relatives/spouse a large amount of debt, in the possible case of death.
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Thu Feb 04, 2010 10:15 pm |
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jason_simpson
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quote:
Originally posted by C9Consulting
How's your retirement looking? Maybe if you use some of the money to pay down the debt and some to invest....it may make better sense given your age (no offense). This way you'll have less risk and you won't be giving your relatives/spouse a large amount of debt, in the possible case of death.
Agree Completely with C9Consulting here. Looking at your age it would be better to pay the nominal loan amount every amount and to invest the rest in other high earning investments. This way you can also have enough for your retirement.
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Sat Apr 24, 2010 2:25 am |
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